Introduction
A life science company had outsourced the development of its incentive compensation (IC) plan for the sales team representing its biologic used in the treatment of a rare disease. Results under this plan were significantly missing corporate targets, so management turned to KMK to analyze the situation and redesign an IC plan that would drive the desired performance.
As the first step in this assignment, KMK developed a survey of the regional business and district sales managers to determine how they viewed their current IC plan and what might provide better motivation and performance.
Results from the survey were not surprising, reflecting the poor morale among the regional business managers (RBMs) and their lackluster performance. IC plan-driven motivation was essentially lacking.
Indeed, only 20% of those responding to the survey felt they were compensated fairly, and the most common complaint was 100% goal attainment did not equal 100% of their payout.
This sentiment was actually a glaring indication that the RBMs did not understand how their current plan worked. Probing further, KMK discovered that RBMs found their greatest impact to be on Start Forms and HIS Referrals and that they had very little impact on patients treating with and remaining on the biologic.
In terms of their compensation plan, the RBMs set low expectations for StartForms goals, despite this being one of the areas where they felt that sales activity had the most influence. 71% of respondents expressed that having an individual unit portion as part of an IC plan was fair, despite a lack of control over super-user performance, and 93% of the RBMs preferred an individual unit plan over a divisional unit plan. The majority of the team felt that MBOs shouldnot be used to determine compensation levels.
Taking all of these findings into consideration, KMK reported the key takeaways on the survey were:
The individual unit plan must be the focus over a divisional unit plan to keep motivation high.
The current goal of growth over a six month average was not well understood and appeared to be demotivating the team. The plan should move back to territory goals based on six-month performance, with an adjustment to get to a national goal.
Start Forms continually played a large part in the survey comments and RBMs felt this was the area they could influence the most. Therefore, the new IC plan should shift the focus back to Start Forms.
KMK'S PLAN
With these results serving as background, the KMK team recommended an IC plan that would reward and pay reps based on their individual performance rather than on team performance and it should shift focus to areas that would make the most impact, resulting in RBMs being compensated on what they were able to change.
The major components of the KMK IC plan were unit sales and patient numbers with the compensation package based on:
- 75% Start Form and Patient Performance – with incrementally increasing financial rewards calculated on each new start form, new patient, new patient being HIS active, or existing patient that became HIS active.
- 25% on Unit Performance with payout starting at 80% of goal attainment and additional commission paid for achieving targets above goal.
There would be an individual quota for each RBM and the District Sales Managers would be measured on RBM performance.
These goals were in sharp contrast to the Start Forms, New Patients, HIS Active Patients and Unit Performance measures that were used to set the goals and award performance in the prior plan. The Kickers of the previous plan were replaced with an increase in base plan target funding, and instead of a 100+ Unit Club, the KMK plan used a corporate performance multiplier applied on top of a payout from a quota-based unit performance.
The resulting KMK-designed IC plan was better aligned with the corporate strategy to increase unit sales and revenue while rewarding for growth. At the same time, it provided what was needed to attract, retain and motivate sales employees in that it was simple to understand and calculate, and was fair. Being aligned to a short-term forecast, it was reasonable and attainable, with an equal upside earning potential for growth.
